In re Indigrid 2 Private Limited (GST AAR Tamilnadu)
The applicant sought an advance ruling on the GST implications of developing and operating a Battery Energy Storage System (BESS) under an agreement to provide energy storage services to electricity utilities. The applicant had not yet commenced business in Tamil Nadu and submitted sample agreements and invoices relating to a similar facility in another location.
Under the agreement, the applicant, as part of a consortium, would set up, operate, and maintain a BESS facility. The system would store electrical energy during surplus periods and make it available to the buyer utility for charging and discharging on an on-demand basis. The tariff structure was capacity-based, fixed for the entire contract term, and billed monthly regardless of actual usage.
To determine taxability, the Authority examined whether the applicant’s activity constituted generation, transmission, or distribution of electricity, or whether it was a separate supply.
The ruling explained the distinctions:
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Generation involves converting other forms of energy into electricity.
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Transmission is the bulk movement of electricity over long distances.
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Distribution is the final delivery of electricity to end consumers.
The Authority noted that electricity cannot presently be stored directly and must be converted into other forms of energy. In this case, the BESS converts electrical energy into chemical energy for storage and later reconverts it into electricity. Since the applicant only stores and returns electricity received from the grid, it is not generating electricity and therefore cannot be treated as a generating company.
The Authority further clarified that BESS is not inherently a generation, transmission, or distribution asset. Its classification depends on function and grid integration. However, whether the BESS is standalone (owned by an independent storage provider) or co-located with a generation/transmission/distribution utility, its function remains the same: energy storage support.
Although electricity laws and amendments recognize Energy Storage Systems as part of the broader power system framework, the Authority emphasized that this classification is for regulatory purposes and does not make a BESS operator a generation, transmission, or distribution utility. Instead, BESS supports these utilities by preventing wastage of surplus electricity and supplying stored energy during high-demand periods.
The agreement showed that:
